Monthly Economic Update for June 2012

 
MONTHLY ECONOMIC UPDATE

 

 

MONTHLY QUOTE

“What we think or what we know or what we believe is, in the end, of little consequence. The only consequence is what we do.”
    

 – John Ruskin

 

 

MONTHLY TIP

If you are marrying before the end of 2012, the IRS will consider you married for all of 2012 and you will have to file your 2012 federal return(s) as either married filing jointly or married filing separately.

 

 

MONTHLY RIDDLE

Which of these five words doesn’t belong in this list: that, what, cat, sat, chat.

Last month’s riddle:
A man tells a friend that he married three women yesterday, and it was all legal. In fact, it was routine. How can he make such a statement?

Last month’s answer:

He is a justice of the peace.

 

June 2012

THE MONTH IN BRIEF
Things fell in May: stock and commodity prices, Treasury yields, mortgage rates, gas prices and the value of the euro. Investors worried about fragmentation of the eurozone, the possibility of default in Greece and bank woes in Spain. U.S. economic indicators ranged from tepid to middling, leading some analysts to wonder if another stimulus was needed. All told, it was a rough month for the market – the poorest month for the Dow since May 2010. Would 2012 simply be a replay of 2011 on Wall Street? Hopefully, the sense of déjà vu would pass.1

DOMESTIC ECONOMIC HEALTH
While May was a month marked by descents, the jobless rate managed to tick up to 8.2%. May’s unemployment report was quite bad: just 69,000 new jobs were created, while a Reuters poll of economists forecast payrolls swelling by 150,000.2

Actually, some stateside indicators did hint at continuing economic strength. Our manufacturing and service sectors were still growing, although the pace of growth had moderated: after a 1.4% gain in April, the Institute for Supply Management’s manufacturing PMI fell 1.3% in May to 53.5. (However, the new orders sub-index went all the way north to 60.1.) In April, ISM’s service sector PMI had been at 53.5; May’s reading improved to 53.7. May car sales were very strong: Toyota’s U.S. sales rose 87%, Nissan’s 21%, and Chrysler’s 30%; sales of General Motors cars and trucks were up 11%. This was nice to hear after the April durable goods report, which showed a 0.2% advance with auto sales powering the gain. 3,4,5,6,7

The federal government said that consumer prices were flat in April (producer prices retreated 0.2%, the first such decline since December). As it happened, 12-month consumer inflation was but 2.3% in May (the lowest annualized inflation since February 2011). Consumer confidence was either notably up or notably down, depending on which poll you believed; the Conference Board’s May survey recorded a 3.8% drop (down to 64.9 from 68.7 for April) while the University of Michigan’s survey hit 79.3 – a 3.8% rise to the highest level since  October 2007. 2,7,8,9,10

The event of the month on Wall Street was Facebook’s IPO, which ended up being fumbled by NASDAQ. Trading glitches aside, this IPO did not turn out to be the next Google: shares were initially offered at $38 on May 18 and closed just slightly higher at the end of the trading day. On June 4, the share price settled at $26.90.11

   

GLOBAL ECONOMIC HEALTH
The odds of a Greek default appeared to increase. A growing number of economists and money managers felt that it would return to the drachma following its June 17 elections, a direct result of being unable to form a coalition government. After the new Greek elections were announced on May 14, $894 million worth of assets left Greek banks in a day. Spain’s government announced that €100 billion had left that country in the first quarter. Major Spanish lenders appeared in jeopardy; analysts estimated it would take €60-80 billion from the IMF to backstop them. Adding to worries that Europe might return to economic balkanization, European Central Bank president Mario Draghi and EU economy commissioner Olli Rehn both warned that the eurozone was in serious trouble. Euro area unemployment hit 11.0% in April, rising 0.7% in a month. The Markit eurozone PMI fell to 45.1 in May (lowest reading in almost two years) and the U.K.’s benchmark manufacturing PMI dropped to 45.9 from 50.2 in April.2,12,13,14,15

In fact, manufacturing PMIs seemed to retreat worldwide in May. For example: China’s “official” PMI slipped unexpectedly to 50.4 from April’s 53.3 mark; China’s HSBC PMI went from 49.3 to 48.7; Australia’s went from 43.9 to 42.4; Germany’s from 46.2 to 45.2; Brazil’s remained flat at 49.3 and South Korea’s PMI was a relatively healthy 51.0. JPMorgan’s global manufacturing PMI was at 50.6 in May, down from 51.4 in April to its lowest point since December.6,15

 

WORLD MARKETS
The Shanghai Composite lost only 1.00% in May; other major benchmarks fared worse. In the rest of the Asia Pacific region, the Sensex lost 5.81%, the Hang Seng 12.07%, the S&P/ASX All Ordinaries 7.46% and the Nikkei 225 9.32%. In Europe, the DAX dropped 8.70%, the CAC 40 6.09% and the FTSE 100 7.51%. (All of the above May performances have been measured in U.S. dollar terms by Morningstar.) The MSCI Emerging Markets Index dropped 11.67%; the MSCI World Index lost 8.99% for May.16,17

COMMODITIES MARKETS

The dollar certainly had a great May – the U.S. Dollar Index, in fact, gained 5.43%. Natural gas futures also rose 6.00% for the month. Aside from those advances, there were marked descents for major commodities. Oil futures retreated 17.49% on the month, falling to settle at $86.53 on the NYMEX. Heating oil slipped 15.11%; RBOB gasoline dropped 12.86%. The upside: retail gas prices fell 5.14% last month. As for metals, gold lost 6.01% in May and that put it at -0.17% for the year. The COMEX price was $1,564.20 on May 31. Copper lost 12.12% in May while silver slipped 10.51%. Marquee crops suffered May losses, too: coffee futures declined 9.25%, corn 12.46%, cotton 19.63% and wheat only 1.64%.1,2

REAL ESTATE
Some good news came in from the Census Bureau and the National Association of Realtors: new and existing home sales had improved in April. New home purchases rose by 3.3% while residential resales were up 3.4% for the month to near-January levels (January 2012 saw the best sales pace in almost two years). NAR said that pending home sales had decreased 5.5% in April, but they were up 14.1% from a year ago. The March edition of the S&P/Case-Shiller Home Price Index hinted that the pace of decline in housing prices could be moderating – the index was down just 1.9% for the last 12 months.18,19,20

With Treasury yields moving further into negative territory during May, mortgage rates went still lower. Freddie Mac noted the following decreases in average home loan interest rates between its April 26 and May 31 surveys: 30-year FRMs, 3.88% to 3.75%; 15-year FRMs, 3.12% to 2.97%; 5/1-year ARMs, 2.85% to 2.84%. Average rates on 1-year ARMs actually ticked up from 2.74% to 2.75%.21

LOOKING BACK…LOOKING FORWARD
After the worst month for stocks in two years, the major U.S. indices were all still in the black YTD. At the end of the month, the S&P 500 was at 1,310.33, the NASDAQ at 2,827.34 and the Dow at 12,393.45. Look at the month-ending real yield on the 10-year Treasury.1,22

% CHANGE Y-T-D 1-MO CHG 1-YR CHG 10-YR AVG
DJIA +1.44 -6.21 -1.40 +2.49
NASDAQ +8.53 -7.19 -0.28 +7.50
S&P 500 +4.19 -6.27 -2.59 +2.28
REAL YIELD 5/31 RATE 1 YR AGO 5 YRS AGO 10 YRS AGO
10 YR TIPS -0.50% 0.80% 2.54% 3.48%

 
Sources: money.msn.com, bigcharts.com, treasury.gov – 5/31/121,23,24,25

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly.

These returns do not include dividends.

June 1 marked the Dow’s worst day of 2012 as anxieties over the eurozone intensified. The middle of June could bring some pronounced volatility before and after Greece’s special elections. Could U.S. economic indicators be encouraging enough to divert Wall Street’s attention from Greece and Spain this month or even provide a shot of confidence? That seems a best-case scenario. While few analysts think the U.S. could slip back into a recession, there was basically a market correction as of June 1 (the S&P 500 was down 9.94% at the close of trading on that day from its April 2 peak), and even bulls are bracing for severe fallout from Europe. At the top of June, the Dow, NASDAQ and S&P were all below their simple 200-day moving averages yet oversold according to their relative strength indexes. Interpret that as you wish; staunch bulls might see grounds for a rally, should the Street somehow take its mind off Europe.5

UPCOMING ECONOMIC RELEASES: Here’s what ahead in terms of stateside news for the rest of June: a new Beige Book from the Federal Reserve (6/6), April wholesale inventories (6/8), May retail sales figures, April business inventories and May’s PPI (6/13), May’s CPI (6/14), the initial June consumer sentiment survey from the University of Michigan and the report on May industrial output (6/15), May housing starts and building permits (6/19), a Fed policy announcement (6/20), May existing home sales and the May Conference Board Leading Economic Indicators index (6/21), May’s new home sales (6/25), the Conference Board’s June reading of consumer confidence and the April Case-Shiller home price index (6/26), April durable goods orders and May pending home sales (6/27), the federal government’s final estimate of Q1 GDP (6/28), May personal spending (6/29) and the University of Michigan final June consumer sentiment survey (6/30).

 

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«RepresentativeDisclosure»

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. The US Dollar Index measures the performance of the U.S. dollar against a basket of six currencies. The SSE Composite Index is an index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange. BSE Sensex or Bombay Stock Exchange Sensitivity Index is a value-weighted index composed of 30 stocks that started January 1, 1986. The Hang Seng Index is a freefloat-adjusted market capitalization-weighted stock market index that is the main indicator of the overall market performance in Hong Kong. The S&P/ASX All Ordinaries Index represents the 500 largest companies in the Australian equities market. Nikkei 225 (Ticker: ^N225) is a stock market index for the Tokyo Stock Exchange (TSE). The Nikkei average is the most watched index of Asian stocks. The DAX 30 is a Blue Chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse. The FTSE 100 Index is a share index of the 100 most highly capitalized companies listed on the London Stock Exchange. The MSCI World Index is a free-float weighted equity index that includes developed world markets, and does not include emerging markets. The MSCI Emerging Markets Index is a float-adjusted market capitalization index consisting of indices in more than 25 emerging economies. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.

Citations.

1 – http://money.msn.com/market-news/post.aspx?post=a78bb8b0-421f-43b2-afb3-f036986bc71a [5/31/12]

2 – www.cnbc.com/id/47645265 [6/1/12]

3 – www.ism.ws/ISMReport/MfgROB.cfm [6/1/12]

4 – www.ism.ws/ISMReport/NonMfgROB.cfm [6/5/12]

5 – money.msn.com/market-news/post.aspx?post=109dd732-6daa-4f8a-b878-a8ee80dd9aba [6/1/12]

6 – articles.marketwatch.com/2012-05-24/economy/31831869_1_orders-for-long-lasting-goods-aircraft-and-parts-orders-durable-goods-orders [5/25/12]

7 – online.wsj.com/article/SB10001424052702304192704577405853805485804.html [5/15/12]

8 – www.bls.gov/news.release/ppi.nr0.htm [5/11/12]

9 – www.conference-board.org/data/consumerconfidence.cfm [5/29/12]

10 – thomsonreuters.com/content/financial/pdf/i_and_a/438965/gains_in_confidence_depends_on_job_growth.pdf [5/25/12]

11 – www.businessweek.com/ap/2012-06/D9V6I7401.htm [6/4/12]

12 – www.nytimes.com/2012/06/04/business/global/euro-zone-nears-moment-of-truth-on-staying-together.html [6/3/12]

13 – www.npr.org/blogs/thetwo-way/2012/05/16/152816508/greece-sets-new-election-for-june-17-fear-of-bank-runs-reported [5/16/12]

14 – epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/3-01062012-AP/EN/3-01062012-AP-EN.PDF [6/4/12]

15 – seekingalpha.com/article/635791-a-bad-week-for-risk [6/4/12]

16 – news.morningstar.com/index/indexReturn.html [5/31/12]

17 – mscibarra.com/products/indices/international_equity_indices/gimi/stdindex/performance.html [5/31/12]

18 – www.freep.com/article/20120523/BUSINESS07/120523032/U-S-new-home-sales-April-housing-market [5/23/12]

19 – www.mortgageloan.com/pending-home-sales-hit-bump-9083 [5/30/12]

20 – blogs.wsj.com/developments/2012/05/29/behind-the-numbers-does-case-shiller-show-a-market-bottoming-out/ [5/29/12]

21 – www.freddiemac.com/pmms/ [6/4/12]

22 – montoyaregistry.com/Financial-Market.aspx?financial-market=an-introduction-to-the-stock-market&category=29 [6/4/12]

23 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=5%2F31%2F11&x=0&y=0 [5/31/12]

23 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=5%2F31%2F11&x=0&y=0 [5/31/12]

23 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=5%2F31%2F11&x=0&y=0 [5/31/12]

23 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=5%2F31%2F02&x=0&y=0 [5/31/12]

23 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=5%2F31%2F02&x=0&y=0 [5/31/12]

23 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=5%2F31%2F02&x=0&y=0 [5/31/12]

24 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [6/4/12]

25 – treasurydirect.gov/instit/annceresult/press/preanre/2002/ofm10902.pdf [1/9/02]